Tax relief for second home owners and buy-to-let landlords halved

The Government is cutting Capital Gains Tax relief on the sale of additional properties from 2015.

In one of the 'blink and you'll miss it' announcements of this year's Autumn Statement, the Government announced the halving of a tax break for people who own more than one home.

This is designed to crack down on the practice of 'flipping' second homes to reduce the amount of Capital Gains Tax (CGT) paid.

How 'flipping' works

Flipping is where buy-to-let landlords or second home owners tell HMRC a property they own other than their main home has now become their primary residence, usually for a very short period. They then 'flip' back their main home for tax purposes to the home they actually live in. Technically you can flip homes as often as you want.

The reason they do this is to try to take advantage of Private Residence Relief, which allows the sale of the property to be exempt from up to three years of CGT if it has been a person's main home at any point.

Flipping was one of the major scandals of the MPs' expenses investigations, with many MPs changing their main residence multiple times to benefit from this relief.

The Private Residence Relief period is now being halved to 18 months, although experts are warning this could hit people who divorce or whose circumstances change, but cannot sell their main home quickly.

This will be introduced from April 2015, following a consultation next year on how it should be administered.

The Treasury estimates this change will lead to an increase of £65 million in CGT paid in the tax year 2015/16, £90 million in the following year, and rising to £105 million in 2018/19.

Property commentators say the change in the rules could lead to a surge of homes being put up for sale.

Should buy-to-let landlords face further changes?

A recent report by think tank the Intergenerational Foundation estimates the total cost of buy-to-let landlords' allowable expenses that they offset against rent is around £3-£5 billion each year.

It is particularly critical of the 'wear and tear allowance', which allows landlords who let furnished property to claim back 10% of their net rental income to cover depreciation of the fixtures and fittings. The Intergenerational Foundation is calling for this to be abolished.

In the report, issued prior to the Autumn Statement, it also wanted Private Residence Relief to be cut back to six months.